A few weeks ago, I ran into a colleague of mine from my old law firm. After exchanging the normal pleasantries, we got to talking about who from our class was still working there. It wasn’t many. I graduated law school back in 2013 and started my first biglaw gig soon after. Just four years […]
Every once in a while, I like to listen to a little Dave Ramsey. You can say what you want about him, but when it comes to motivating you to pay off your debt, I don’t think anyone can beat him. His secret is just how simple and doable he makes things seem. Listen to […]
When you’re married to a dentist, you tend to learn a lot about the world of dentistry. Turns out dentists love to talk about teeth and when you hear them talk about it all the time, you end up picking up a few pieces of information here and there.
In addition to learning about teeth, I’ve also been learning about the crazy amount of student loans that most new dentists graduate with these days. I’m definitely no stranger to student loans. Law school is notoriously expensive and in the legal world, student loans are pretty much a given. When it comes to student loans though, lawyers don’t even compare to the type of debt that dentists can graduate with.
One of the things that surprised me when I began my student loan payback journey was how much interest I had to pay when I started making my payments. What was even more surprising to me was how much interest my loans had accrued while I was in school (and making no money). In fact, when I graduated and made my first student loan payment, it didn’t even reduce my student loan balance at all. All of it went directly towards the interest!
Interest is one of those things that we all sort of understand in theory. Most of us basically know that when we borrow money, we agree to pay it back at some point, with a little extra on top. But I don’t think we’re very good at really understanding what interest looks like on a daily basis. Maybe that’s why we sometimes let debt linger in our lives…
If you had to ask me what the single most important thing you can do for yourself financially when you finish school, my answer would always be to live like a student. It seems so obvious, and yet, despite being so obvious, very few people actually follow this advice.
I live in a college neighborhood, so I see a lot of college kids when I’m out and about. Sometimes, I like to think about how weird their living situations are compared to your typical middle-class American. Most of these college kids live in rundown houses, usually packing four or more people into a house. It’s not uncommon for people to share rooms or live in tiny bedrooms no bigger than a closet. When I’m out doing deliveries, I’ll sometimes make a delivery to a dorm and am reminded that, for at least a year, most college kids live and sleep in a tiny dorm room with a person they’ve never met before!
Anyone with debt and a decent cash flow will eventually find themselves with a choice. What should be done with all of that excess money? Assuming your goal isn’t to spend it all on buying things, you’re basically left with two choices. Pay off your debt aggressively. Or invest the surplus.
The pure mathematical answer is to play the interest rate arbitrage game. Excess money should go into assets that provide a rate of return higher than whatever interest rate your debt is at. It’s a pretty simple calculation from that vantage point…